Health coverage can be hard to find at smaller companies

Carolyn BigdaYour Money staff reporter

If you're considering taking a job with a small employer, take a hard look at the benefits: Health insurance may not be included.

A March study from the U.S. Government Accountability Office found that the number of employers offering coverage has declined, particularly among small businesses. In 2006, 60 percent of employers with between three and 199 workers provided insurance, down from 68 percent five years earlier.

It's not that small businesses are stingy. But because they have fewer employees to contribute premiums, the insurer takes on more risk, which drives up the cost for the business or workers (or both).

Then, if one employee becomes seriously ill, premiums skyrocket.

"It's not just the rate, but the unpredictability of the rate," said Bill Lindsay, president of the Denver Benefits Group of Lockton Cos. LLC, an insurance broker. "You don't see this volatility in prices in any other part of an employer's operation, except maybe fuel prices today."

Health-care costs have jumped 20 percent over the last two years for Avon Lake, Ohio-based Phoenix Products Inc., which has 29 full-time employees. The company has had to trim benefits, such as discontinuing a prescription drug plan.

Small businesses also have shifted more of the premium costs to employees, raised deductibles and lengthened the period employees must wait to become eligible for benefits.

And as insurance becomes more expensive and less generous, more workers are opting out. Young hires, making entry-level pay, may be especially likely to skip the benefit.

Going without coverage, though, is risky. You may be healthy now but should you come down with something serious (and it does happen), you could find yourself in serious financial straits.

"It's a problem without a good solution right now for folks in that position," said Kathleen Stoll, director of health policy for Families USA, a non-partisan organization focused on improving the health-care system.

But there are some options.

-- Read the policy carefully.

If a small employer offers health insurance, read plan documents thoroughly to see if it provides the coverage you need. Keep in mind that even with cutbacks, employer-sponsored plans generally are more comprehensive than a low-cost individual policy.

Also, you may be able to defray out-of-pocket costs. Last year, for example, Phoenix Products doubled the deductible from $1,000 to $2,000 for single employees, but the company will kick in half the extra amount, or $500.

-- Get on your spouse's or parents' plan.

If insurance is too expensive or unavailable, the next-best option is to become insured through a spouse's policy, though you generally will have to wait to sign up until open enrollment.

If unmarried, you may be able to continue coverage through a parent's plan. Some states now require insurers to extend coverage to adult children. (Typically you're kicked off a parent's plan at age 19 or once you're no longer a full-time student.)

To find policies in most states, go to www.ncsl.org/programs/health/dependentstatus.htm.

-- Snag your own insurance.

If all else fails, you may be able to buy your own policy. In some states, you can purchase a high-deductible policy in which you pay for all expenses up to a limit, say $2,000, before insurance kicks in.

These plans generally are the cheapest option. A quick search on eHealthInsurance.com turned up policies for a 25-year-old male in Illinois for as little as $45 per month.

But high-deductible plans generally don't cover pre-existing conditions for as long as 12 months and often exclude some care, such as maternity.

If you need more comprehensive coverage, check if you're eligible for Cobra, the federal program that allows you to continue an employer's health insurance even after you leave a job or no longer qualify as a dependent.

You'll pay the full cost of the premium (including the employer's share), plus as much as 2 percent. But you'll also receive comprehensive coverage for less than if you bought the same plan as an individual.